Unit 1 Review (AP Economics)
Terms in this set (42)
could be either a reward or a penalty.
The most fundamental economic problem is
Economics is best defined as the study of how people, businesses, governments, and societies
make choices to cope with scarcity
In broad terms the difference between microeconomics and macroeconomics is that
microeconomics studies decisions of individual people and firms and macroeconomics
studies the entire national economy
The question "Should movies or compact discs be produced?" is an example of the
Human capital is
the skill and knowledge of workers.
Four Factors of Production
- capital (human, physical)
Opportunity cost means
the highest-valued alternative forgone.
A positive statement is
about what is.
A normative statement is
what ought to be
The birth of economics as an intellectual discipline can be dated fairly precisely in the
eighteenth century with
Adam Smith's - The Wealth of Nations.
Ceteris paribus is the Latin expression for
an expression that means "other things being equal." (Holding all variables except one constant and assessing the impact of the one variable which
The fallacy of composition is the false belief that
what is true for the parts is also true for the whole.
The post hoc, ergo propter hoc fallacy is
the error of reasoning that a first event causes a second event because the first event
occurred before the second event.
An economic model includes
only details considered essential
The production possibilities frontier
marks the boundary between attainable combinations of goods and services and
The production possibilities frontier is
downward sloping and reflects tradeoffs in choices
Any production point outside the production possibilities frontier
A point inside a production possibilities frontier
could indicate that some resources are unemployed.
On the vertical axis, the production possibilities frontier shows ________; on the horizontal axis,
the production possibilities frontier shows ________.
the quantity of one good; the quantity of another good
Production efficiency requires that
- we are producing at a point on the PPF
- resources be assigned to the task for which they are the best match
- we cannot produce more of one good without producing less of some other good.
Which point on the PPF (PPC) indicates that
resources are NOT fully utilized or are misallocated?
Production efficiency is achieved
when it producing one more unit of one good cannot occur without producing less of
some other good.
The principle of increasing opportunity cost leads to
a production possibilities frontier (PPF) that is bowed outward from the origin
A PPF bows outward because
not all resources are equally productive in all activities.
Increasing opportunity cost is due to
the fact that resources are not equally suited for different types of production.
Marginal cost is the opportunity cost
that arises from producing one more unit of a good or service.
Marginal cost curves generally slope
upward because of increasing opportunity cost.
Marginal benefit is the benefit
that is received from consuming one more unit of a good or service
The marginal benefit of a good or service is measured by
willingness to pay for an additional unit of it.
Marginal benefit curves generally slope
downward, but not because of increasing opportunity cost.
Resource use is efficient when
we produce the goods we value most highly
When we cannot produce more of any good without giving up some other good that we value
more highly, we have achieved
An expansion of the production possibilities frontier is
called economic growth.
After Hurricane Mitch devastated part of Central America in October 1998, we can be
reasonably sure that the production possibilities frontier for that area temporarily
shifted inward, toward the origin
A key factor that leads to economic growth is
human capital accumulation.
Because of the existence of comparative advantage, the total output of goods is higher when
specializes in the production of a particular good.
A person who has an absolute advantage in the production of all goods will
have a comparative advantage only in the production of some goods but not for others.
A person who has an absolute advantage will
not have a comparative advantage in everything
If a person can produce more of all goods than anyone else, that person
has an absolute advantage.
Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either
2 units of X or 4 units of Y in an hour. There can be gains from exchange
if Agnes specializes in the production of X and Brenda in Y
A nation can consume at a point outside its PPF
when it trades with other nations
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